Malaysian leader suggests China-backed rail plan may be axed

FILE - In this Monday, Jan. 21, 2019, file photo, Malaysia's Prime Minister Mahathir Mohamad arrives for meeting at the federal chancellery in Vienna, Austria. On Tuesday, Jan. 29, 2019, Mahathir says that proceeding with a multi-billion-dollar rail link project backed by China will ‚Äúimpoverish‚Äù the country, saddling it with heavy debts for the next 30 years. (AP Photo/Ronald Zak, File)

January 29, 2019 - 3:26 AM

KUALA LUMPUR, Malaysia - Malaysian Prime Minister Mahathir Mohamad said Tuesday that proceeding with a multi-billion-dollar China-backed rail link project would "impoverish" the country, saddling the government with excess debt for the next 30 years.

Since winning a historic vote last May, Mahathir's government has axed or reviewed large-scale infrastructure projects to rein in surging national debt that it blames mostly on corruption in the previous government.

But there is confusion over the status of the $20 billion East Coast Rail Link following recent conflicting statements by two Cabinet ministers. Mahathir's comments Tuesday suggested it might be called off.

He said the cost of the project could exceed 100 billion ringgit ($24.3 billion) upon completion.

"It is not that we do not want to honour our contracts, but we just cannot pay," Mahathir said. "It will impoverish us so we seek understanding of the parties concerned, that it is not because we just want to frustrate or throw out a contract, but because we are really tied in terms of finance."

Paying compensation won't be as much as "the amount of debt we will carry for the next 30 years," he added.

In Beijing, Chinese Foreign Ministry spokesman Geng Shuang said the project had been agreed to "on the basis of mutual respect and equality."

He said the two sides were discussing the issue.

The 688 kilometre (430 miles) East Coast Rail Link is a key part of China's regional Belt and Road infrastructure initiative. It would connect Malaysia's west coast to rural eastern states. It is largely financed by China and the main contract was awarded in 2016 to the China Communication Construction Company, or CCCC, by former Prime Minister Najib Razak.

Officials have said the project's final cost is about 50 per cent higher than estimated by the previous government.

During a trip to China last August, Mahathir initially said the project would be cancelled. He later said negotiations were underway about scaling down the project or delaying it. The situation was muddled when Economic Affairs Minister Azmin Ali on Saturday said the Cabinet had agreed to terminate the project but Finance Minister Lim Guan Eng disputed that.

Mahathir said Tuesday that Lim will make an official announcement soon.

The government has also said it is investigating whether any money in the rail project has been channeled by Najib's government to repay debts at the 1MDB state investment fund. A massive financial scandal at 1MDB led to the ouster of Najib's coalition. Najib is facing multiple corruption charges linked to 1MDB.